The Growing Prospect of a December Rate Cut Sinks the Dollar Against Peers

The falling greenback has fallen significantly against its major peers in 2025 in a downward trajectory that’s supported by President Trump, who is prioritizing interest rate cuts while adopting a positive outlook for a weaker dollar due to its potential for supporting international trade.

According to the Dollar Index (DXY), the currency now sits more than 8% lower than at the beginning of the year, and with expectations high for upcoming interest rate cuts from the Fed, it appears that a more sustained downturn is likely.

With Fed Governor Christopher Waller citing long-standing weakness in the job market as a prospective catalyst for a quarter-point rate cut in December, traders are now pricing in an 83% likelihood of rates being lowered this month.

Polarized Fortunes for USD and Wall Street

From the lows following the announcement of Trump’s Liberation Day tariffs in early April, the S&P 500 index has climbed more than 30%. Over the same period, the DXY has slipped around 3%, illustrating the polarized fortunes of the US markets and currency.

Why is this the case? We’re seeing a divergence in investor sentiment, which has become increasingly bullish towards major tech stocks thanks to the ongoing AI boom. Meanwhile, high volumes of international investors are becoming more bearish towards the US economy, with factors like tariffs, sticky inflation, public debt, the recent government shutdown, and interference with the independence of the Federal Reserve as key causes for concern.

While foreign holdings of US Treasuries reached a record $9.13 trillion in June, outflows of $5 billion during the same period represented an almost three-year high. In April, outflows reached $40.8 billion on the back of the rollout of new tariff policies.

“Sometimes investors can link the US stock market and economy together, but they are completely separate entities,” said Iván Marchena, Senior Economist at global brokerage brand Just2Trade. “Despite this, a weak dollar can boost Wall Street. With 40% of S&P 500 revenue coming from overseas, higher earnings revisions due to a weaker dollar can help to support higher investor sentiment in blue-chip companies and sustain the stock market’s AI boom for longer.”

Yuan Strengthens Against Rival

USD/CNY has followed a similar trajectory to the DXY, with China’s yuan overcoming its own set of challenges to recapture 13-month highs against the greenback.

The arrival of reciprocal tariffs also heavily impacted the economic outlook of China at a time when the Asian powerhouse was mounting a recovery from a difficult post-pandemic period characterized by slow growth, low interest rates, and a widespread decline in foreign investment.

Despite this, the renminbi mounted its strongest annual gain since 2020 as questions once again emerged over whether the Chinese government is attempting to position its currency as a favorable alternative to the dollar as the global reserve currency.

Notably, state-aligned Chinese banks have reduced their dollar lending to other emerging-market economies, favoring the lower lending costs of the yuan instead.

However, Peter Kinsella, global head of forex strategy at UBP, noted in July that the People’s Bank of China is unlikely to seek long-term appreciation for the renminbi due to lower domestic inflation rates. This means that while the dollar is likely to slip further due to upcoming Fed rate cuts, a sustained slide in USD/CNY may be more subdued.

What Could USD Trends Mean for Investors?

For investors seeking out opportunities amid the greenback’s weakening outlook, the best value could be found in opting for commodities like gold and silver, which are likely to draw more investors seeking a relatively low-risk alternative to treasuries in low interest rate environments.

Because most global commodities are priced in dollars, shifting currency values could help to make raw materials cheaper for foreign buyers, potentially supporting demand and driving prices higher.

However, risks to investing in metals like gold or commodities like coffee could also come in the form of trade tariffs or a flare-up of trade wars involving the US.

Adapting to a Weaker Dollar

With at least one Federal Reserve interest rate cut appearing likely, investors may have to adapt faster to a weaker dollar environment, which may carry long-term ramifications for other markets.

Adopting a proactive approach by monitoring news that could impact the currency against its peers, such as monetary policy and outlooks on trade, could be advantageous in a weaker dollar environment.

Adapting faster to change can help to bypass the strain of a lower dollar while helping investors to take advantage of the opportunities that a weak dollar can bring elsewhere, particularly when it comes to commodity trading.